This paper investigates the problem of optimal electricity pricing in microgrids under government subsidies and demand uncertainty. A three-level Stackelberg game model is developed to analyze the hierarchical interaction among the key players in the energy market. In this structure, the government acts as the leader, determining the optimal level of subsidy, while the microgrid and the distribution network operator (DNO) are the followers, each maximizing their respective profits in response to the subsidy policy. Two distinct scenarios are analyzed. In the centralized scenario, the government, DNO, and microgrid cooperate to maximize the overall social welfare and system profit. In contrast, in the decentralized scenario, each entity optimizes its own objective function independently, and the government strategically adjusts the subsidy to ensure market stability and efficiency. Numerical analyses demonstrate that increasing the subsidy level significantly reduces the equilibrium price of electricity, enhances demand, and improves total social profit. Sensitivity analysis further reveals that parameters such as price elasticity and investment cost have a strong influence on the optimal prices and profits. The results highlight that well-designed government subsidies can play a crucial role in promoting sustainable microgrid development and improving energy market performance.



The results highlight that well-structured subsidies can provide strong incentives for investment in distributed renewable generation within microgrids. Consequently, subsidies not only enhance the economic feasibility of microgrids but also contribute to increasing the share of renewable energy in the overall energy mix, supporting long-term sustainability goals.